Which of the following examples is not taxable?

A, Filipino citizen donated a parcel of land located in the United States to B, a non-resident
alien.
On June 1, 2016, A made a gift of P20,000 to his daughter on account of her marriage
celebrated on May 1, 2015.
Mr. Ramos gives his wife a diamond ring worth P100,000 as a birthday gift.
A and B are the only heirs of C. A renounces his share of inheritance in favor of B.

SOLUTION:

When an heir renounces the inheritance in favor of nobody in particular, he is deemed not to
have received it at all. For all intents and purposes, the property would have passed directly from
C to B.
Tax - Donors Tax (Average)

Question 2
A pension plan was established in 2014 requiring a lump sum payment of 2,000,000 into the
fund to provide for services of employees before the establishment of the plan, and the
contribution annually of 100,000 beginning 2014. The deduction for the employer in 2014 would
be:
2,100,000
2,000,000
100,000
300,000

SOLUTION:

One-tenth of lump sum payment (past service cost) (2,000,000 x 200,000

1/10)
Present service cost 100,000
Deduction 300,000
The law fixes an arbitrary period of ten years to amortize lump sum payment for past service
cost.
Tax - Income Tax Corporation (Average)

Question 3
Which of the following income is not from a related trade, business or activity of a domestic
proprietary educational institution?
 Income from hospital where medical graduates are trained for residency Income from the
canteen situated within the school campus Income from bookstore situated within the school
campus Income from rent of available office spaces in one of the school buildings
Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 4
In 2015, an employer gave the following fringe benefits, in cash and in kind, to its employees:

To management level 2,040,000

employees
To rank-and-file employees 5,000,000
The fringe benefit tax is:
960,000
652,000
680,000
652,800

SOLUTION:

Grossed-up monetary value of the fringe benefit 3,000,000

(2,040,000/68%)
Fringe benefit tax (3,000,000 x 32%) 960,000
Fringe benefits to rank-and-file employees are not subject to the fringe benefit tax.
Tax - Percentage and Other Taxes (Average)

Question 5
Which statement is considered correct?
An excise tax which imposes a tax based on weight or volume capacity or any other physical
unit of measurement is called specific tax.
An excise tax which imposes a tax based on selling price or other specified value of the
article is called ad valorem tax.
A percentage tax which is imposed whether the transaction resulted in a gain or loss is called
transaction tax.
All of the choices.

Tax - VAT (Average)

Question 6
Which is the best answer? In the case of a sale, barter or exchange of real property on installment
by a real estate dealer, subject to VAT:
 The gross selling price shall mean the consideration stated in the sales document.
The gross selling price shall mean the consideration in the sales document or the fair market
value, whichever is higher.
The fair market value shall mean the fair market value as determined by the Commissioner
of Internal Revenue/zonal value, or the fair market value as shown in the assessment rolls of the
Provincial or City Assessors, whichever is higher.
The gross selling price is the consideration stated in the sales document, or zonal value, or
the fair market value in the assessment rolls, whichever is the highest.

Tax - VAT (Difficult)

Question 7
Alma is a VAT-registered grocery owner and sugar dealer. She submitted lists of inventory as of
December 31, 2015 to the Revenue District Officer as follows:

Grocery items, total value 325,000

Raw cane sugar, total value 255,000
In January 2016, she had the following sales and purchases:

  Sales Purchases
Grocery (total invoice value) 1,042,525 650,100
Raw cane sugar (excluding 480,000 420,000
VAT)
The VAT due for January, 2011 is:
6,675.26 35,675.00 41,675.31 42,045.54
SOLUTION:

Output tax on sale of grocery (1,042,525 x 12/112) 111,699.11

Less: Input taxes , On purchases of grocery (650,100 x (69,053.57)
12/112)
VAT due 42,045.54
Tax - VAT (Average)

Question 8
Which of the following individuals shall not be subject to income tax under Section 24?
Individual citizen of the Philippines residing therein Individual citizen of the Philippines
residing outside the Philippines including overseas contract workers Individual alien who is
resident of the Philippines Individual alien who is not a resident of the Philippines
Tax - Income Tax Individuals (Easy)

Question 9
Which of the following statements is correct? A donation inter vivos by husband and wife,
jointly during the marriage:
Is a donation of conjugal property that will require one computation of the donor’s tax, if the
spouses are under the system of conjugal partnership of gains.
Is a donation of community property that will require one computation of the donor’s tax, if
the spouses are under the system of absolute community of property.
Is a donation of exclusive property by either spouse that will require one computation of the
donors tax, if the spouses are under the system of conjugal partnership of gains.
Is a donation of each spouse to the extent of one-half that will require separate computations
for two donors taxes, under whichever property relationship exists between the spouses.

Tax - Donors Tax (Average)

Question 10
The following statements are correct, except one. Which is the exception:
Mr. A died. His estate is under administration (judicial settlement). The estate is a taxable
entity.
Mr. B died leaving an estate. His estate is not under administration, but the property is cared
by his eldest child. The estate is a taxable entity.
In a taxable estate, the rules to apply on gross income and deductions are the rules for
individuals;
Any distribution of the income to an heir is a deduction for the estate.

Tax - Income Tax Partnerships, Estates and Trusts (Average)

Question 11
John qualified as head of a household for 2014 tax purposes. Mr. Josue’s 2014 gross income was
P200,000 inclusive of P10,000 short term capital gain. Mr. Josue had a long-term loss of P8,000
in 2014. What amount of this capital loss could Mr. Josue deduct in 2014?
0
3,000
4,000
8,000

Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 12
Which is wrong? Deferred recognition of income is allowed in:
Installment sales where the initial payments do not exceed twenty-five percent of the selling
price.
 Installment sales where the initial payments exceed twenty-five percent of the selling price.
Long-term contracts.
Advance rental received.

SOLUTION:

Installment sales where the initial payments do not exceed twenty-five percent of the selling
price. Installment method of recognizing income is allowed; Installment sales where the initial
payments exceed twenty-five percent of the selling price. Deferred payment method of
recognizing income is allowed; and Long-term contracts. Percentage of completion method of
reporting income is required by law. But in the case of advance rental, the whole amount
received is taxable in the year received whether on the cash or accrual method of accounting.
Tax - Income Tax Corporation (Average)

Question 13

I On a sale of real property on installments by a real estate dealer, the seller

shall be subject to VAT on the installment payment received, including
interests and penalties for late payment.
II On a sale of real property on installments by a real estate dealer, where the
VAT is computed not on the consideration in the deed of sale but on the
higher fair market value, the VAT must be filed separately with a specific
mention that it is based on the market value of the property.
True, true.
False, false.
True, false.
False, true.

Tax - VAT (Average)

Question 14

I A wash sale involves securities which were held as capital assets

II In a transaction under circumstances where the loss is a loss on a wash sale
that cannot be deducted, a gain on a sale under the same circumstances is
taxable.
True, true.
False, false.
True, false.
False, true.
Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 15
Which of the following statements is not correct?
No judge shall order a distribution of any part of the estate to an heir without a certification
from the Bureau of Internal Revenue that the tax has been paid.
A bank shall not allow the co-depositor of a deceased to withdraw form the joint bank
account without a certification form the Bureau Of Internal Revenue that the tax has been paid.
No Register of Deeds shall transfer to any heir the title of a decedent to real property without
a certification form the Bureau of Internal Revenue that the tax has been paid.
None of the above.

Tax - Estate Tax (Average)

Question 16

I Mr. A, in trading business, had a receivable of P150,000 from Mr. B.

Without exerting utmost effort to collect, Mr. A canceled the indebtedness
of Mr. B, notified Mr. B, and the latter thanked Mr. A for it.
II Mr. C sold to Mr. D personal property worth P200,000 for a consideration
of P50,000, to take effect immediately upon receipt of the consideration.
Which statement is correct?
Situation 1 involves a donation of P150,000 and should be covered by a donor’s tax return
within thirty days from the date of cancellation of the indebtedness.
Situation 1 is bad debt expense of the business and should not be treated as involving a
taxable donation.
Situation 2 shall be considered a bad bargain and not involving a taxable donation.
Situation 2 involves a donation of P200,000 and should be covered by donor’s tax return
within thirty days from the date of the sale.

SOLUTION:

Cancellation of indebtedness is not a bad debt expense of business if utmost effort was not taken
to collect, short of judicial action. It is considered a donation, hence a donor’s tax return should
be filed for that donation. When a sale is for less than full and adequate consideration, to take
effect immediately during the lifetime of the transferor, there is a donation. It is not considered a
mere bad bargain. The amount that should be considered as a donation is the excess of the fair
market value at the time of transfer over the consideration received. There should be a donor’s
tax return showing a gross gift of (P200,000 less P50,000)P 150,000.
Tax - Donors Tax (Difficult)

Question 17
I Is a co - ownership taxable? Yes, because although the activities of the co-
owners are limited to the preservation of the property they derived income there
from
II Is the share of a co- owner taxable? No, because each co- owner is taxed
individually on his distributive share in the net income of the co-ownership
Both statements are correct
Both statements are wrong
Only statement 1 is correct
Only statement 2 is correct

Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 18
A dealer in securities has the following data for the year 2012:

Sales, shares held as inventory 4,000,000

Sales, shares held as investment 1,500,000
Cost, shares held as inventory 2,000,000
Cost, shares held as investment 500,000
Supplies expense, net of VAT 100,000
Rent expense, net of VAT 200,000
Assuming the shares held as investment were sold through the local stock exchange, how much
is the capital gains tax?
95,000 7,500 5,000 None of the choices
Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 19
Which of the following statements is wrong?
A taxpayer may appeal to the Court of Tax Appeals.
The Government may appeal to the Court Of Tax Appeals.
A taxpayer may appeal from a decision of the Court of Tax Appeals.
The government may appeal from a decision of the Court of Tax Appeals.

Tax - Tax Remedies (Average)

Question 20

I A change in the method of accounting requires a prior approval of the

Commissioner of Internal Revenue.
II A change in the accounting period does not require prior approval of the
Commissioner of Internal Revenue as long as the necessary income tax
 returns for the different accounting periods (old, interim and new) are
filed.
True, true.
False, false.
True, false.
False, true.

Tax - BIR (Average)

Question 21
The following data on net income, bad debt, write off and recovery show:

2013 Case A Case B Case C

Net income (loss) before write off 80,000 40,000 (20,000)
Less: Bad debts written off and      
claimed as deduction 50,000 50,000 50,000
Net income (loss) after write off 30,000 (10,000) (70,000)
       
2014 Subsequent recovery 50,000 50,000 50,000
The taxable recovery is
Case A (50,000); Case B (50,000); Case C (50,000)
Case A (50,000); Case B (0); Case C (0)
Case A (50,000;) Case B (40,000); Case C (20,000)
Case A (50,000); Case B (40,000); Case C (0)

Tax - Income Tax Corporation (Average)

Question 22
In a month, VAT not included:

Domestic sales 660,000

Export sales 1,500,000
Purchases from VAT-registered  
persons: 550,000
Of goods exported
Of goods sold in the Philippines 220,000
Operating expenses 110,000
The input taxes attribute to export sales which may be refunded or credited against any other
internal revenue tax including the any value-added tax on domestic sales):
 50,000
20,000
70,000
66,000

SOLUTION:

Purchases of goods exported 550,000

Input tax attributable to goods exported (550,000 x 66,000
12%)
Tax - VAT (Average)

Question 23
A donation on account of marriage will give a donor a deduction from the gross gifts made if:
The donee is a legitimate child.
The donee is anybody.
The donee is not a stranger.
None of the choices are correct.

SOLUTION:

Under the National Internal Revenue Code, there is a deduction from gross gifts of donation on
account of marriage if the donation is made by a parent to a legitimate, recognized natural or
adopted child.
Tax - Donors Tax (Average)

Question 24
XYZ Corporation, a domestic corporation had the following data during the calendar year 2014

Gross income 1,000,000

Business connected expenses 400,00
Dividends from :  
Domestic corporation 100,000
Foreign corporation, 90% of the gross income was derived from the Phil. 100,000
Foreign corporation, 60% of the gross income was derived from the Phil 80,000
Foreign corporation, 30% of the gross income was derived from the Phil 40,000
The taxable income is
920,000
820,000
748,000
 750,000

Tax - Income Tax Corporation (Average)

Question 25
Ryan Company delivered materials to a government agency amounting to P224,000, inclusive of
tax. How much would Ryan Company receive from the government agency after the withholding
of the VAT and 1% withholding income tax?
189,200 192,920 206,800 212,000
SOLUTION:

Total invoice price   224,000

Less: Withholding VAT (200,000 x 5%) 10,000  
Withholding income tax (200,000 x 1%) 2,000  
Net   212,000
Tax - VAT (Average)

Question 26
Tax havens include the following countries except ___.
Bahamas
Bermuda
Vietnam
Channel Islands
Switzerland

Tax - General Principles of Taxation (Average)

Question 27
One of the following is required to issue receipts or sales invoice
Seller of merchandise whose sales amounted to P25 or more
Market vendors exclusively selling domestic meat, vegetables, fruits, poultry, fish and other
food products
Seller who is exempted by the commission of Internal Revenue in meritorious cases
Seller of merchandise whose sales amounted to less than P25

Tax - VAT (Average)

Question 28
In the installment method of reporting income: if the property sold is subject to a mortgage
which is assumed by the buyer, and such mortgage does not exceed the cost of the seller: Gross
profit (divided by) Contract Price (multiplied by) Installment payments received during the year
(equals) Gross income for the year. Which of the following statements is not true?
Selling price is the contract price.
Selling price less mortgage assumed by the buyer is the contract price.
Initial payments consist or all payments received in the year of sale.
Initial payments will not consider the mortgage assumed by the buyer.

Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 29
A citizen and resident of the Philippines died leaving the following properties and rights:

Cash on hand and in banks (of which 150,000 was provided in the  
will to be given to a charitable institution) 1,000,000
Real property in the Philippines:  
Assessed value per assessment rolls of the city 100,000
Zonal value per Bureau of Internal Revenue 500,000
Selling price of adjacent piece of land the day preceding the date of  
death 600,000
Real property in Malaysia, fair market value 450,000
Car in the Philippines, with a mortgage of 200,000 400,000
Receivables:  
From a friend from whom there is no possibility of recovery 20,000
From a sister whose ratio of assets to liabilities is 1:3 15,000
Amounts under insurance contracts:  
Receivable under life insurance, with the father as revocable 250,000
beneficiary
Receivable under life issuance, with the mother as irrevocable  
beneficiary 200,000
Receivable under accident insurance, for accident that happened one  
year ago 50,000
Receivable under property insurance, for damage caused to his car 12,000
Revocable transfers:  
To sister (fair market value at the time of transfer was 40,000 and 50,000
consideration received was 10,000
To father (fair market value at the time of transfer was 30,000 and  
consideration received was 30,000) 60,000
To mother (fair market value was 40,000 and consideration received 70,000
was 50,000)
The gross estate is:
2,737,000
2,807,000
 2,627,000
1,350,000

SOLUTION:

Cash on hand in the banks 1,000,000

Real property in the Philippines (at zonal value) 500,000
Real property in Malaysia, fair market value 450,000
Car in the Philippines 400,000
Receivables:  
From a friend from whom there is no possibility of recovery 20,000
From a sister whose ratio of assets to liabilities is 1:3 15,000
Amounts under insurance contracts: 250,000
Receivable under life insurance, with the father as revocable
beneficiary
Receivable under accident insurance, for accident that happened  
one 50,000
year ago
Receivable under property insurance, for damage caused to his car 12,000
Revocable transfers:  
To sister (fair market value at the time of transfer was 30,000 and  
consideration received was 10,000 40,000
Gross estate 2,737,000
Tax - Estate Tax (Difficult)

Question 30

I The Commissioner of Internal Revenue may, at any time, order inventory

taking of goods of any taxpayer in order to determine his internal revenue
tax liability;
 
The Commissioner of Internal Revenue may place the business operations
of a taxpayer under surveillance if there is reason to believe that the
taxpayer is not declaring his correct income, sales or receipts;
II The Commissioner of Internal Revenue, after comparison with other
taxpayers in similar businesses, may prescribe a minimum amount of
gross receipts, sales and taxable base of a taxpayer under investigation;
 
The Commissioner of Internal Revenue may examine the books of
accounts of other taxpayers in the exercise of his power to determine the
correct income, sales or receipts of a taxpayer under investigation.
Both statements are correct
Both statements are wrong
 The first statement is correct while the second statement is wrong
The first statement is wrong while the second statement is correct

Tax - BIR (Average)

Question 31
A VAT subject real estate dealer sold a residential lot on January 15, 2014. The following
information was made available on the terms of the sale:

Gross selling price 3,000,000

Initial payments on January 15, 2014 750,000
Balance to be paid in equal installment, installments starting 2,250,000
2/15/2014
The zonal value of the residual lot was P3,500,000. How much was the output tax on January 15,
2014 using 12% VAT rate?
420,000
360,000
105,000
None of the choices

Tax - VAT (Average)

Question 32

I When a VAT-registered manufacturer who is also subject to an excise tax,

exports his goods, the input taxes attributable to the goods exported may be
refunded or credited.
II When a VAT-registered manufacturer who is also subject to an excise tax,
exports his goods, the excise tax paid on such goods may be refunded or
credited.
Both statements are correct.
Both statements are wrong;
First statement is correct but the second statement is wrong.
First statement is wrong but the second statement is correct.

SOLUTION:

The value added tax paid on good exported may be refunded or credited against other interval
revenue taxes due from the taxpayer (Section 112[d], National Internal Revenue Code). the
excise taxes paid on goods exported may be refunded or credited (Section 130[d], National
Internal Revenue Code)
Tax - VAT (Average)

Question 33
Which of the following will give rise to a creditable input tax?
Importation of goods for sale, VAT on importation is still unpaid Purchase of services,
bill still unpaid VAT on cash purchase of raw materials from VAT-exempt supplier who
issued VAT invoice Purchase of supplies from a VAT-registered supplier who issued non
-VAT invoice
Tax - VAT (Easy)

Question 34

I If before the expiration of the time prescribed for the assessment of the tax,
both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period of
extension agreed upon.
II Under the doctrine of equitable recoupment, a liability for tax the collection
of which has not prescribed. Conversely, a liability for tax the collection for
which has prescribed may be offset against a refund of another tax the
refund for which has not prescribed. This American jurisprudence can very
well apply in the Philippines.
The first statement is correct, but the second statement is wrong
The first statement is wrong, but the second statement is correct
Both statements are correct
Both statements are wrong

SOLUTION:

The doctrine of equitable recoupment applied in the United States cannot apply in the
Philippines. By a decision of the Supreme Court of the Philippines, the doctrine cannot apply
because we have provisions of law on prescriptions on the right of the government to collect and
the right of the taxpayer to a refund. The doctrine of equitable recoupment renders nugatory the
provisions on prescription. There will be no finality of rights under the doctrine.
Tax - Tax Remedies (Average)

Question 35
In a deferred payment sale of property, where income cannot be reported on the installment
method because the initial payments exceed twenty-five percent (25%) of the selling price,
income may be reported on the deferred payment method. Which of the following statements is
not true under the deferred payment method of reporting income?
The obligations of the buyer shall be given their equivalent in cash.
In the year of sale, cash received, plus equivalent in cash of the buyer’s obligations , less the
cost of the property, equals gross income.
In subsequent year/s of collections: cash collected, less its equivalent in cash reported in the
year of sale, equals gross income.
The income is computed each time a collection is made.

Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 36
The fundamental principles of local taxation are
private purpose
uniformity principle
to allow the collection of taxes to private person
all of the above

Tax - General Principles of Taxation (Difficult)

Question 37
On installment sale of real property by a real estate dealer, the installment VAT is allowed only
if the initial payments on the sale do not exceed twenty-five percent of the gross selling price.

I Gross selling price to which the initial payments is related is the

consideration stated in the deed of sale.
II Initial payments do not include notes or other evidences of indebtedness
issued by the purchaser to the seller at the time of sale.
Both statements are correct
Both statements are wrong
First statement is correct but second statement is wrong
First statement is wrong but second statement is correct.

Tax - VAT (Average)

Question 38
Which of the following statements are not account titles with balances in the books of accounts
of a VAT taxpayer?
Output taxes.
Input taxes.
Excess input taxes carry-over.
VAT payable.
Tax - VAT (Average)

Question 39

I A deduction from gross gift for donation on account of marriage is available

to a donor who is a citizen or resident of the Philippines.
II A deduction from gross gift for donation on account of marriage is not
available to a donor who is not a citizen and not a resident of the
Philippines.
Both statements are true.
Both statements are false.
First statement is true while second statement is false.
First statement is false while second statement is true.

Tax - Donors Tax (Average)

Question 40

I Sales of certain goods and services to senior citizens are exempt from the
value-added tax, hence the value-added tax on the transaction is P0.
II Sales of certain goods and service to senior citizens are zero-rated VAT sales,
hence the value-added tax on the transaction is P0.
True, true.
False, false.
True, false.
False, true.

Tax - VAT (Average)

Question 41

I No court shall have the authority to grant an injunction to restrain the collection
of any national internal revenue tax, fee or charge imposed by the National
Internal Revenue Code.
II Judicial proceedings for the collection of an internal revenue tax may be
instituted even without a prior assessment of the tax the taxpayer.
True, true.
False, false.
True, false.
False, true.
Tax - Tax Remedies (Average)

Question 42

Revenues of the current period 400,000

Collections during the period:  
Of revenues of prior periods 50,000
Of revenues of the current period 300,000
Of revenues of the succeeding period 10,000
(advances)
Business tax if a domestic common carrier of passengers:
12,000
22,800
10,800
21,000

SOLUTION:

Collections during the period:  

Of revenues of prior periods 50,000
Of revenues of the current period 300,000
Advances 10,000
Taxable gross receipts 360,000
Common carrier’s tax (360,000 x 3%) 10,800
Tax - Percentage and Other Taxes (Average)

Question 43

I The Commissioner of Internal Revenue may, at any time, order inventory taking

of goods of any taxpayer in order to determine his internal revenue tax liability.
 
The Commissioner of Internal Revenue, after comparison with other taxpayer
under surveillance if there is reason to believe that the taxpayer is not declaring
his correct income, sales or receipts.
II The Commissioner of Internal Revenue, after comparison with other taxpayer in
similar businesses, may prescribe a minimum amount of gross receipts, sales
and taxable base of taxpayer under investigation.
 
The Commissioner of Internal Revenue may examine books of accounts of
other taxpayers in the exercise of his power to determine the correct income,
sales or receipts of a taxpayer under investigation.
True, true.
False, false.
 True, false.
False, true.

Tax - Percentage and Other Taxes (Average)

Question 44
Mr. A sold property on installment terms on June 5, 2015. The property had a cost of 100,000.
The selling price was 400,000. The payments on the selling price were 50,000 on the date of sale
and 50,000 every year thereafter. The asset sold was capital asset held for two years. Within the
year, he sold another capital asset held for ten months at a loss of 10,000.
The net capital gain for the year if the gain on the sale is to be reported on the installment
method:
8,750
18,750
27,500
37,500

SOLUTION:

Initial payment (not exceeding 25% of the selling price) 50,000

Selling price 400,000
Less: Cost 100,000
Capital gain 300,000
Installment capital gain (300,000/400,000 x 50,000) 37.500
50% of capital gain 18.750
Capital gain (50%) 18,750
Less: Capital loss (100%) 10,000
Net capital gain 8,750
Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 45
A domestic trading corporation had the following data for 2016:

Gross sales 2,000,000

Cost of sales 1,000,000
Capital gains 300,000
Capital loss 100,000
The Optional Standard Deductions is:
480,000
800,000
520,000
 400,000

SOLUTION:

Gross sales 2,000,000

Less: Cost of sales 1,000,000
Gross profit from sales 1,000,000
Add: Capital gains 300,000
Gross income 1,300,000
Optional Standard Deduction (4% of 520,000
1,300,000)
A capital loss does not go into the computation of gross income.
Tax - Income Tax Corporation (Average)

Question 46
The following earnings are subject to fringe benefit tax, except
Salary of rank and file employees
Housing necessary for the trade and for the convenience of the employer
Food allowance for the convenience of the employer and necessary in the conduct of the
business.
All of the above

SOLUTION:

The entire amount of de minimis benefits are not subject to fringe benefits tax regardless of
whether the recipient of the benefit is a rank and file supervisory or managerial employees. The
free meals and leaving quarters are exempt from any kind of income tax if they fall under the
convenience of the employer rule. The fringe benefit tax is a deductible expense of the grantor-
employee.
Tax - Percentage and Other Taxes (Difficult)

Question 47
The (3) of the following are exempt from the value-added tax. Which is the exception?
Sales or importation of medical, dental and veterinary medicines.
Services rendered by persons subject to percentage tax.
Receipts from leasing of real properties.
Export sales by persons who are not value-added tax registered.

Tax - Percentage and Other Taxes (Average)

Question 48
A domestic corporation had the following selected data for 2015, the accumulated earnings for
which year the Bureau of Internal Revenue considered to be improper. The net taxable income is
P3 million. 

Cost of sales 2,000,000

Quarterly income tax paid 710,000
Business expenses 1,000,000
Interest on Philippine currency bank deposit 50,000
Capital gain on sale directly to buyer of shares of domestic 120,000
corporation
Dividend income from domestic corporation 60,000
Dividend declared and paid during the year 500,000
Maturing bonds in 2016 100,000
The improperly accumulated earnings tax (IAET) is:
175,300
156,300
171,300
323,000

SOLUTION:

Net taxable income   3,000,000

Add:    
Interest on Philippine currency bank deposit 50,000
Capital gain on sale of shares of domestic 120,000  
corporation
Dividend income from domestic corporation 60,000 230,000
Total   3,230,000
Less:    
Normal income tax (1) 900,000
Capital gain tax on shares of stock (2) 7,000  
Final income tax on passive income (3) 10,000  
Dividend declared and paid during the year 500,000 1,417,000
Balance   1,813,000
Less: Amount required for retirement of bonds   100,000
Improperly accumulated profits   1,713,000
Improperly accumulated profits tax at 10% of   171,300
P1,713.000
Income tax at the end of the year:

Sales 6,000,000
Less: Cost of sales 2,000,000
Gross profit from sales 4,000,000
 Less: Business expenses 1,000,000
Normal tax taxable income 3,000,000
Minimum corporate income tax at 2% of 80,000
P4,000,000
Normal income tax at 30% of P3,000,000 900,000
Less: Quarterly income tax paid 710,000
Due 190,000
Capital gain tax on shares of stock of domestic corporation:  
On P100,000 at 5% and on P20,000 at 10% 7,000
Final tax withheld on passive income:  
On Philippine currency bank deposit at 20% on P50,000 10,000
Tax - Income Tax Partnerships, Estates and Trusts (Difficult)

Question 49
Income which is constructively received is already taxable income is a rule under this method of
accounting:
Cash method.
Accrual method.
Installment method.
Deferred payment method.

SOLUTION:

Income is constructively received when, although not actually received, it is already within the
control of the taxpayer.
Tax - Income Tax Corporation (Average)

Question 50

I A substantial underdeclaration of taxable sales, receipts or income, or a

substantial overstatement of deductions shall constitute prima facie evidence of
a false or fraudulent return.
II A return, statement or declaration filed with the Bureau of Internal Revenue
may not anymore be modified, changed or amended.
True, true.
False, false.
True, false.
False, true.

SOLUTION:
A failure to report sales, receipts, or income in an amount exceeding 30% of that declared in the
return, and a claim of deductions in an amount exceeding 30% of actual deductions shall render
the taxpayer liable for substantial underdeclaration of sales, receipts or income or for
overstatement of deductions and shall constitute prima facie evidence of a false or fraudulent
return. A return, statement or information filed with the Bureau of Internal Revenue may be
modified, changed or amended within three years from the date of such filing.
Tax - Tax Remedies (Average)

Question 51
A donated parcel of land to B, his 15 year old son on account of B’s graduation. A did not pay
the gift tax on the property donated. Then, B took possession of the property and received the
rental derived from it. In 2014, an assessment on the income derived from the property was
issued against B, which is correct?
The assessment against B is correct
The income should be included in A’s income tax return
The assessment against B should be deferred
A validly effected a transfer of the property to B by virtue of delivery

Tax - Income Tax Individuals (Average)

Question 52

I A value-added tax payment is not an expense in the books of accounts of the

VAT taxpayer.
II The excess of input taxes over output taxes in a given month or quarter is a
deferred charge.
Both statements are correct.
Both statements are wrong.
The first statement is correct bur the second statement is wrong.
The first statement is wrong but the second statement is correct.

Tax - VAT (Average)

Question 53

I Excise taxes imposed and based on weight or volume capacity or any other
physical unit of measurement shall be referred to as ad valorem tax
II Excise taxes imposed and based on selling price or other specified value of
the good shall be referred to as specific tax
True; False
False; True
 True; True
False; False

Tax - Percentage and Other Taxes (Average)

Question 54
Which of the following income is not from a related trade, business or activity of a domestic
proprietary educational institution?
Income from rent of available office spaces in one of the school buildings
Income from the hospital where medical graduates are trained for residency
Income from the canteen situated within the school campus
Income from bookstore situated within the school campus

Tax - Income Tax Partnerships, Estates and Trusts (Average)

Question 55
Which of the following statements is correct?
Only VAT-registered taxpayers are required to pay the value-added tax.
A non-resident service provider who is not VAT-registered is subject to the Philippine
value-added tax on services performed in the Philippines.
A lease of property in the course of trade or business is always subject to value-added tax.
In the case of goods imported into the Philippines by VAT-exempt person which are
subsequently sold to a non-exempt person is not subject to value-added tax on importation.

Tax - VAT (Difficult)

Question 56

I An individual taxpayer is allowed to claim a optional standard deduction of

40% of gross income
II A corporate taxpayer is allowed to claim optional standard deduction of
40% of gross income
True; True
True; False
False; True
False; False

Tax - Income Tax Individuals (Average)

Question 57

I For individuals, estates and trusts, capital gains and losses are considered at
one hundred percent (100%) if the asset was held for not more than twelve
months, and fifty percent (50%) if the asset was held for more than twelve
months.
II When the securities were held by an individual as capital asset and were
written off, the write off results in a capital loss on the date of the write off.
True, true.
False, false.
True, false.
False, true.

SOLUTION:

On statement 2, the law says that when the securities shall become worthless and the securities
were held as capital assets, the loss would be considered to have arisen from a sale on the last
day of the taxable year. For example. Date acquired- March 10, 2012, Date written off-February
2,2013. The date of sale is December 31, 2013, and the holding period of the asset is more than
twelve months.
Tax - Income Tax on Capital Assets, Sales or Exchange of Properties (Average)

Question 58

Investments 4,000,000
Vehicle 6,000,000
Family home (assessed value, P10,000,000; zonal value,  
7,000,000)
Piece of land (cost, P12,000,000; fair market value,  
P15,000,000)
Actual funeral expenses 350,000
Medical expenses (including P300,000 unpaid bill) 700,000
How much is the family home deduction?
3,500,000 1,000,000 500,000 None of the choices
Tax - Estate Tax (Easy)

Question 59
Which of the following statements is wrong? A revenue bill
Maybe recommended by the President to Congress
May have a House version and a Senate version approved separately and then consolidated
with both houses approving the consolidated version
May originate from the Senate and on which same bill the House of Representatives may
propose amendments
Must originate from the House of Representatives and on which same bill the Senate may
propose amendments

Tax - BIR (Difficult)

Question 60
This is an inherent limitation on the power of taxation.
The rule on taxation shall be uniform and equitable
No law impairing the obligations of contracts shall be enacted.
Charitable institutions, churches, personages or convents thereto, mosque and non-profits
cemeteries and all kinds of lands, buildings and improvements actually, directly and exclusively
used for religious or charitable purposes shall be exempt from taxation
The tax laws cannot apply to the property of foreign governments

Tax - General Principles of Taxation (Difficult)

Question 61
Which of the following is not a scheme of shifting the incidence of taxation?
The manufacturer transfers the tax to the consumer by adding the tax to the selling price of
the gold sold.
The purchaser asks for a discount or refuses to buy at regular prices unless it is reduced by
the amount equal to the tax he will pay.
Changing the terms of the sale like FOB shipping point in the Philippines to FOB destination
abroad, so that the title passes abroad instead of in the Philippines.
The manufacturer transfers the sales tax to the distributor, then in turn to the wholesaler, in
turn to the retailer and finally to the consumer.

Tax - General Principles of Taxation (Easy)

Question 62

Gain on sale of personal property purchased in the Philippines and  

sold in Hongkong 400,000
Compensation received for personal services in the Philippines 200,000
Rent income from real property in Malaysia 300,000
Gain from sale in the Philippines of shares of a foreign corporation 100,000
Deductions identified with:  
Philippine income 80,000
Foreign income 120,000
Deductions unidentified with any particular income 30,000
The Philippine net income is:
220,000
211,000
190,000
111,000

SOLUTION:

  Philippines Foreign
Gain on sale of personal property   400,000
Compensation for personal service 200,000  
Rent income from real property   300,000
Gain from sale of shares 100,000  
Totals 300,000 700,000
Deductions clearly identified with the income    
Allocated unidentified deductions: 80,000 120,000
300,000/1,000,000 x 30,000 9,000  
700,000/1,000,000 x 30,000   21,000
Totals 89,000 141,000
Net income 211,000 559,000
Tax - Income Tax Individuals (Average)

Question 63
The following data pertain to a value-added taxpayer for November, 2009:

Sales, total invoice price 896,000

Local purchases from a VAT supplier, total invoice 268,800
cost
In October, there was an importation of goods to be sold, with a landed cost of 200,000. There
were no sales in October.
The value-added tax payable for November:
80,000
43,200
36,000
56,000

SOLUTION:

Output taxes (896,000 x 12/112)   96,000

Less: input taxes    
On purchases of November (268,800 x 12/112) 28,800
 Excess input tax of October (On the importation: 200,000 x 24,000 52,800
12%)
Value-added tax payable   43,200
Tax - VAT (Average)

Question 64
Y Co. issued preferred shares with the following features: Non-voting, entitled to dividend
regardless of income or loss for the year, to be paid ahead of common shares in the event of a
dissolution, and Y Co. had the option to redeem the shares.

I The payment of dividend is interest payment by the Y Co.,deductible from its

gross income.
II The payment of dividend is income distribution and is not deductible from
gross income.
True, true.
False, false.
True,false.
False, true.

Tax - Income Tax Corporation (Average)

Question 65

I A receivable from a debtor can be a donation only if the creditor notifies

the debtor that he is not collecting anymore and the debtor makes a
positive act signifying his acceptance of the benevolence of debtor.
II A donation inter vivos that had paid the donor’s tax can still be reduced if
the legitimize of the compulsory heirs were prejudiced, and there would be
a resulting refundable donor’s tax.
True, true
False, false
True, false
False, true

SOLUTION:

A donations an act of Liberality that requires acceptance on the part of the beneficiary. There
should be some evidence of acceptance. Under the law, a person cannot give by way of donation
more than what he can give by way of inheritance. Which means that the legitimize of
compulsory hairs should not be prejudiced.
Tax - Donors Tax (Average)
Question 66
Divine Peace Educational, Inc., a stock educational institution organized for profit, decided to
lease for commercial use a 1,500 sq. m. portion of its school. The school actually, directly, and
exclusively used the rents for the maintenance of its school buildings, including payment of
janitorial services. Is the leased portion subject to real property tax?
Yes, since Divine Peace Educational a stock and for profit educational institution
No, since the school actually, directly, and exclusively used the rents for educational
purposes
No, but it may be subject to income taxation on the rents it receives
Yes, since the leased portion is not actually, directly, and exclusively used for educational
purposes

Tax - Income Tax Partnerships, Estates and Trusts (Average)

Question 67
Any amount subsequently received on account of a bad debt previously charged off and allowed
as a deduction from gross income for prior years must be included in gross income for the
taxable year in which received. This is
End-result doctrine
Destination of income test
Severance theory
Equitable doctrine of tax benefit

Tax - Income Tax Corporation (Average)

Question 68
Ms Karylle is a long serving employee of an COCO. She is an executive secretary to the General
Manager for which she receives an annual compensation income of P988,000.
Can Ms Karylle opt to be taxed at fifteen percent (15%) preferential tax rate?
Yes, because her gross annual compensation income meets and even exceeds the threshold
amount No, because she is not occupying a managerial or technical position Yes, because
as a long-serving employee she is qualified to opt for the 15% preferential tax rate None of
the choices
Tax - Income Tax Individuals (Difficult)

Question 69

I Amount receivable by the heirs under Republic Act 4917 is a special

deduction.
II Deduction from the gross estate allowed by a special law is a special
 deduction.
True, true.
False, false.
True, false.
False, true.

SOLUTION:

Medical expenses, family home and standard deduction (recent deductions in the National
Internal Revenue Code by an amendatory law) were classified by the regulations as special
deductions. Amount Receivable Under Republic Act 4917 which among the recent deductions,
should be considered also as special deductions. By revenue regulations, only deductions under
the National Internal Revenue Code are ordinary deductions.
Tax - Estate Tax (Average)

Question 70
Which of the following statements is not correct?
interest on government securities is now tax exempt effective January 1, 1998
stock dividend is tax exempt
premium on life insurance may be taxable to the employee
fringe benefit is subject to 32% final tax effect January 1, 2000

Tax - Income Tax Individuals (Average)

Question 71

  The court may authorize the distribution of estate, to an heir if in its sound
discretion it believes that the heir badly needs his share.
  The administrator or any of his heirs, may however upon authorization of BIR
withdraw from the decedent’s bank deposits P20,000 without the required
certification that the estate tax has been paid
True, true
True, false
False, true
False, false

Tax - Estate Tax (Average)

Question 72
A citizen of Malaysia, residing in Kuala Lumpur, with properties in the Malaysia and the
Philippines, had the following data on properties and rights at the time of his death and their
values:

Real estate, Malaysia 1,000,000

Real estate, Philippines 2,000,000
Shares of stock of a domestic corporation 200,000
Shares of stock of a Malaysian corporation 300,000
Share of stock of a Indonesian corporation, doing business in the  
Philippines only 100,000
Philippine peso deposit in BDO bank 500,000
Receivable under a life insurance with an insurance company doing  
business in Malaysia 250,000
The gross estate that should be reported in the Philippines is:
4,350,000
3,700,000
4,000,000
2,800,000

SOLUTION:

Real estate, Philippines 2,000,000

Shares of stock of a domestic corporation 200,000
Shares of stock of a Indonesian corporation, doing business in the  
Philippines only 100,000
Philippine peso deposit in BDO bank 500,000
Gross estate 2,800,000
Tax - Estate Tax (Average)

Question 73
A domestic corporation had the following data in five years:

Year 4 Normal income tax 32,000

  MCIT 65,000
Year 5 Normal tax 8,000
  MCIT 2,000
Year 6 Normal tax 10,000
  MCIT 30,000
Year 7 Normal tax 22,000
  MCIT 20,000
Year 8 Normal tax 50,000
  MCIT` 20,000
The income tax for Year 8 (before credit for any quarterly income tax
payments) is:
50,000
30,000
20,000
28,000

SOLUTION:

  Year 4 Year 5 Year 6 Year 7 Year 8

MCIT 65,000 2,000 30,000 20,000 20,000
Normal income tax 32,000 8,000 10,000 22,000 50,000
Whichever is higher 65,000 8,000 30,000 22,000 50,000
Less: Excess MCIT          
over normal tax
From year 4   8,000   22,000  
From year 6         20,000
Income tax due 65,000 0 30,000 0 30,000